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The significance of Hedging Energy Commodities

Although some consider Hedging to be an advanced and difficult to discern concept, the execution of hedges is in fact extremely basic. Risk managers and  MCX free tips  clients can use futures contracts, over-the-counter swaps, call and put options, and combinations thereof to lock-in prices for a given period.

Hedging to Mitigate Risk

Hedging is especially significant for companies that produce or consume large quantities of energy such as natural gas, crude oil, etc. However, many companies look at hedging as a profit strategy, which it is not. The point of hedging is not to make money but rather mitigate risk.

Here are a couple of tools to help manage hedging programs:

Futures/Forward Contracts

Highly recommended by commodity trading tips  planners, futures are the basic contract to buy a predefined asset of standardized quantity, on a certain date at a certain price. Future contracts are ensured by a clearinghouse, which limits the risk of opposite party default

Options

Options are a very flexible hedging tool. An organization or investor can buy a 'call' option, which is the entitlement to purchase an asset at a specific price, or a 'put' option, to sell at a specific price at a future date.

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